The Final Exam consists of 55 of these exact, same questions (below):
The answers are NOT given – that’s the whole idea of a “review”
Chapter 18: Introduction to Management Accounting
Revenue from mowing lawns less the operating costs from mowing lawns equals net operating income.
Sales minus cost of goods sold equals gross profit.
Labor costs that are directly traceable to the product are part of manufacturing overhead.
Manufacturing overhead includes all manufacturing costs except direct materials and direct labor.
Managerial accounting develops reports for internal parties.
The costs of indirect materials cannot easily be traced to specific finished products.
To what does the term e-commerce refer?
A) the production of superior products and services
B) the conduct of business on the Internet
C) the quick delivery of goods and services
D) the exchange of information with customers and suppliers
Which of the following are period costs?
A) current assets on the balance sheet
B) costs incurred and expensed in the accounting period
C) costs related to the sale of products
D) current liabilities on the balance sheet
Case 18.1
James and John provide lawn mowing services in the local community. During the month of July
they incurred the following operating costs to mow 200 lawns.
Wages expense $5,000
Gasoline expense 1,500
Depreciation on equipment 1,000
They earned $20,000 from mowing lawns in July.
Refer to Case 18.1. What is the net operating income for July?
A) 15,000
B) 7,500
C) 20,000
D) 12,500
Refer to Case 18.1. What is the average cost of mowing one lawn?
A) 75.00
B) 37.50
C) 100.00
D) 62.50
Inventory accounts for a manufacturer include which of the following?
A) materials, work in process, and finished goods
B) work in process, direct labor, and finished goods
C) merchandise, materials, and finished goods
D) work in process, materials, and manufacturing overhead
Goods that are partially completed by a manufacturer are referred to as which of the following?
A) materials inventory
B) finished goods inventory
C) merchandise inventory
D) work in process inventory
Which of the following is an example of direct labor?
A) wages of assembly line personnel
B) salary of vice president of production
C) wages of factory security
D) salary of production manager
Which of the following defines direct materials?
A) used to determine total inventoriable product costs
B) cannot be separately and conveniently traced through the manufacturing process to finished
goods
C) are not part of the finished product
D) used to determine total manufacturing overhead
Manufacturing overhead includes which of the following?
A) indirect labor and indirect materials
B) indirect materials and direct materials
C) direct materials and direct labor
D) factory rent and direct labor
All of the following are examples of manufacturing overhead except for one. Which is it?
A) utilities incurred in the factory
B) insurance expired on factory equipment
C) wages of assembly line workers
D) indirect materials
Where is finished goods inventory reported?
A) income statement as revenue
B) income statement as a period cost
C) balance sheet as a current asset
D) balance sheet as a long-term asset
Chapter 19: Job Order Costing
Job costing systems accumulate costs for each individual job.
A job cost record is a document that accumulates direct materials, direct labor, and manufacturing
overhead costs assigned to each individual job.
All manufacturing overhead costs are accumulated as debits to a single general ledger account titled
manufacturing overhead.
The key to assigning indirect manufacturing costs to jobs is to identify a manufacturing overhead
allocation base.
Since service firms do NOT carry inventory, it is not necessary to know the costs related to different jobs.
The most significant cost for a service firm is direct labor.
Which of the following would be debited to record the requisition of direct materials?
A) materials inventory
B) work in process inventory
C) finished goods inventory
D) cost of goods manufactured
The entry to transfer direct labor and indirect labor costs from manufacturing wages into production
includes a debit to which of the following?
A) manufacturing overhead and work in process inventory
B) finished goods inventory
C) manufacturing overhead
D) finished goods inventory and work in process inventory
In job costing, direct materials used in production are debited to which of the following?
A) manufacturing overhead
B) work in process inventory
C) finished goods inventory
D) either manufacturing overhead or work in process inventory
In job costing, all manufacturing labor incurred is initially debited to what account?
A) manufacturing overhead
B) work in process inventory
C) manufacturing wages
D) wages payable
Case 19.1
Wall Corporation's selected cost data for July is shown below:
Cost of goods manufactured $420,000
Work in process inventory, July 1 100,000
Work in process inventory, July 31 120,000
Direct materials used 50,000
Manufacturing overhead is allocated at 70% of direct labor cost.
Refer to Case 19.1. What are the total manufacturing costs for July?
A) $520,000
B) $400,000
C) $550,000
D) $440,000
Refer to Case 19.1. What was the amount of direct labor incurred in July?
A) $330,126
B) $229,412
C) $243,750
D) $224,500
The records at Smith and Jones Company show Job. No. 110 charged with $11,000 of direct materials
and $12,500 of direct labor. Smith and Jones Company allocates manufacturing overhead at 85% of
direct labor cost. What is the total cost of Job No. 110?
A) $20,625
B) $34,125
C) $22,500
D) $21,625
How is the predetermined manufacturing overhead rate used to allocate manufacturing overhead
calculated?
A) by dividing the total estimated manufacturing overhead costs by the total estimated quantity of
allocation base
B) by dividing the total estimated quantity of allocation base by the total estimated manufacturing
overhead costs
C) by multiplying the total estimated manufacturing overhead costs by the total estimated quantity
of allocation base
D) by dividing the total estimated manufacturing overhead costs by the total actual quantity of the
allocation base
When a job is completed in a job costing system, the journal entry involves which accounts?
A) a debit to finished goods inventory and a credit to work in process inventory for the cost of the
job
B) a debit to finished goods inventory and a credit to work in process inventory for the sales price
of the job
C) a debit to cost of goods sold and a credit to finished goods inventory for the cost of the job
D) a debit to work in process inventory and a credit to finished goods inventory for the cost of the
job
Which of the following is the most significant cost for a service company which used job order costing?
A) labor costs
B) indirect costs
C) supplies costs
D) overhead costs
Chapter 20: Cost Processing
In a process costing system, a separate work in process inventory account is maintained for each
process.
Both job costing and process costing systems accumulate costs as the products move through production
and then assign these costs to units.
Conversion costs include direct labor and direct materials.
Conversion costs are generally added evenly throughout the process.
Equivalent units should be computed separately for direct materials and conversion costs.
Wong Corporation had 25,000 finished units and 8,000 units that were 35% complete. The equivalent
units totaled 27,800.
Transferred-in costs are incurred in a previous process and are carried forward as part of the product's
cost when it moves to the next process.
What are the two basic types of product costing systems?
A) job costing and process costing
B) department costing and plant costing
C) variable costing and process costing
D) FIFO costing and weighted-average costing
In a process costing system, the number of work in process inventory accounts is equal to which of the
following?
A) the number of production departments
B) the number used in a job costing system
C) the number of products produced
D) cannot be determined without additional information
In a process costing system, cost of work in process-department 1 is transferred where?
A) to finished goods inventory
B) to cost of goods sold
C) to manufacturing overhead
D) to work in process-department 2
The entry to record actual manufacturing overhead incurred in a processing department would include
which of the following?
A) credit to work in process inventory
B) credit to manufacturing overhead
C) debit to manufacturing overhead
D) debit to work in process inventory
The entry to record a $24,000 transfer from the assembly department to the finishing department would
include which of the following?
A) credit to work in process inventory-assembly
B) debit to finished goods inventory
C) credit to materials inventory
D) debit to work in process inventory-assembly
State University has 1,000 full-time faculty and 500 part-time faculty. A full-time faculty member teaches
eight courses per year and a part-time faculty member teaches four courses per year. What is the number
of equivalent units of faculty?
A) 1,250
B) 1,000
C) 500
D) 1,500
The number of equivalent units in work in process regarding direct materials and conversion costs is
what?
A) must always be equal
B) must be lower for conversion
C) must be lower for materials
D) may be different
Case 20.1
The Made Rite Shoe Corporation uses a process costing system. In the Cutting
Department, 4,000 units were started and by the end of the period, all but 400 units had
been completed. The 400 units were 80% complete regarding materials and 40%
complete regarding conversion. Costs added during the current period include $66,300 for
materials and $70,004 for conversion.
Refer to Case 20.1. What is the number of equivalent units for direct materials?
A) 3,540
B) 3,900
C) 3,760
D) 3,920
Refer to Case 20.1. What is the number of equivalent units for conversion?
A) 3,700
B) 3,760
C) 3,920
D) 3,900
Chapter 21: Cost-Volume-Profit Analysis
Total variable costs change in response to changes in the volume of production.
Unit fixed costs change as total production increases.
Mixed costs are part variable and part fixed.
The variable cost per unit always remains the same.
The breakeven point represents the minimum number of units a company must sell before it earns a
profit.
If all other factors are constant, an increase in fixed costs will increase the breakeven point.
Sales mix is the combination of products that make up total sales.
Which of the following costs is an example of a fixed cost?
A) delivery costs
B) salary of plant manager
C) direct materials
D) sales commissions
Renting a car and paying $15 per day plus $.03 per mile driven is an example of what type of cost?
A) variable cost
B) conversion cost
C) fixed cost
D) mixed cost
Which of the following is a characteristic of a contribution margin income statement?
A) Variable and fixed expenses are combined into total expenses.
B) When variable costs are less than sales revenue, there is a positive contribution margin.
C) The amount of gross margin is shown.
D) Contribution margin is identified as the difference between sales revenue and total expenses.
To what is contribution margin equal?
A) fixed expenses minus variable expenses
B) sales revenues minus variable expenses
C) fixed expenses plus variable expenses
D) sales revenues minus fixed expenses
Canine Company produces and sells dog treats for discriminating pet owners. The unit selling price is
$10, unit variable costs are $7, and total fixed costs are $3,300. How many dog treats must Canine
Company sell to breakeven?
A) 330
B) 471
C) 1,100
D) 194
Canine Company produces and sells dog treats for discriminating pet owners. The unit selling price is
$10, unit variable costs are $7, and total fixed costs are $3,300. What are breakeven sales?
A) $11,000
B) $4,714
C) $3,300
D) $7,700
If the sale price per unit decreases and variable costs remain the same, what will be the effect on the
contribution margin ratio?
A) It is impossible to determine with the given information.
B) It will decrease.
C) It will remain the same.
D) It will increase.
Sales below the breakeven point indicate a __________ whereas sales above the breakeven point
indicate a __________.
A) loss, loss
B) profit, profit
C) loss, profit
D) profit, loss
If the sale price per unit is $8.50, the variable expense per unit is $6.75, and the breakeven sales in
dollars is $331,500, what are total fixed expenses?
A) $22,286
B) $68,250
C) $39,000
D) $26,325
If the sale price per unit is $32, total fixed expenses are $45,000, and the breakeven sales in dollars is
$180,000, what will the variable expense per unit be?
A) $8.00
B) $4.20
C) $4.00
D) $24.00
Chapter 22: The Master Budget and Responsibility Accounting
A budget is a quantitative expression of a plan that helps managers coordinate and implement the plan.
The master budget is the set of budgeted financial statements and supporting schedules for the entire
organization.
The sales budget must be prepared before any other component of the operating budget.
Responsibility accounting performance reports compare budgets with actual results for each responsibility
center.
A cost center is a responsibility center in which a manager is accountable for costs ONLY.
Management by exception directs management's attention to important differences between actual and
budgeted amounts.
Which of the following is an advantage of the budgeting process?
A) assures the company of achieving its objectives
B) aids in performance evaluation
C) coordinates the activities of the organization
D) both A and B
Which of the following is a benefit of budgeting?
A) improved decision-making processes
B) improved motivation for employees
C) focuses management's attention on the future
D) all of the above are benefits of budgeting
Which of the following budgets is an operating budget?
A) capital expenditures budget
B) sales budget
C) cash budget
D) budgeted balance sheet
Heath Company has beginning inventory of 21,000 units and expected sales of 48,000 units. If the
desired ending inventory is 15,500 units, how many units should be produced?
A) 27,000
B) 53,000
C) 45,000
D) 42,500
A plan showing the units to be sold and the projected selling price, which is the starting point in the
budgeting process, is called the:
A) budgeted statement of cash flows.
B) budgeted income statement.
C) sales budget.
D) cash budget.
The first step in preparing the operating budget is preparing which of the following?
A) cash budget
B) purchases budget
C) sales budget
D) budgeted income statement
The preparation of which of the following is the final step in the preparation of the financial budget?
A) master budget
B) budgeted income statement
C) budgeted balance sheet
D) cash budget
June sales were $40,000 while projected sales for July and August were $50,000 and $60,000,
respectively. Sales are 40% cash and 60% credit. All credit sales are collected in the month following the
sale. What are the expected collections for July?
A) $50,000
B) $44,000
C) $36,000
D) $54,000
What is the practice of directing executive attention to important deviations from budgeted amounts
called?
A) management by control
B) management by objective
C) management by analysis
D) management by exception
Chapter 23: Flexible Budgets and Standard Costs
Another name for a static budget is a flexible budget.
Flexible budgets are budgets that summarize cost and revenue information for one specific volume level.
The sales volume variance arises because the number of units actually sold differs from the number of
units expected to be sold according to the master budget.
A standard cost is a carefully predetermined cost that usually is expressed on a per-unit basis.
A price variance measures how well a company keeps unit prices of material and labor inputs within
standards.
If the standard quantity allowed is less that the actual quantity used, the efficiency variance is favorable.
The production volume variance is favorable whenever actual output is less than expected output.
A sales volume variance is the difference between which of the following?
A) actual sales volume and normal sales volume
B) actual results and amounts in the flexible budget
C) amounts in the flexible budget and the static budget
D) number of units actually sold and number of units expected to be sold according to the static
budget
Which of the following is a carefully predetermined cost that is usually expressed on a per unit basis?
A) flexible cost
B) applied cost
C) allocated cost
D) standard cost
In a standard cost system, what does each resource used to make a product have?
A) efficiency standard
B) flexible standard
C) price standard
D) both A and C are correct
The difference between actual costs and the costs that should have been incurred for the actual number
of outputs is called:
A) flexible budget variance.
B) static budget variance.
C) price variance.
D) sales volume variance.
What does a favorable direct materials efficiency variance indicate?
A) The standard quantity of direct materials for actual output was less than the actual quantity of
direct materials used.
B) The actual quantity of direct materials used was greater than the standard quantity for
budgeted output.
C) The actual quantity of direct materials used was less than the standard quantity for actual
output.
D) The actual cost of direct materials was less than the standard cost of direct materials.
The direct materials flexible budget variance can be divided into two variances called the:
A) price variance and the efficiency variance.
B) quantity variance and the efficiency variance.
C) price variance and the standard variance.
D) price variance and the rate variance.
What does an unfavorable direct labor price variance indicate?
A) Both actual quantity and actual cost of direct labor hours exceeded standard quantity and
standard cost of hours for actual output.
B) The actual direct labor cost per hour exceeded the standard direct labor cost per hour for
actual output.
C) The actual cost of direct labor per hour was less than the standard cost of direct labor per
hour.
D) The actual quantity of direct labor hours worked exceeded the standard quantity of hours for
actual output.
Professional Woodworkers budgeted 3 hours of direct labor per unit at $8.50 per hour to produce 400
units of product. The 400 units were completed using 1,140 hours at $8.75 per hour. What is the direct
labor price variance?
A) $300 F
B) $285 U
C) $300 U
D) $285 F
The difference between total actual overhead and the flexible budget amount for actual production is
referred to as:
A) the overhead efficiency variance .
B) the production volume variance.
C) the overhead flexible budget variance.
D) both A and C are correct.
Chapter 24: Activity-Based Costing and Other Cost Management Tools
ABC costing is generally less accurate than traditional cost systems.
Two main benefits of ABC are more accurate product cost information and more detailed information on
costs of activities and the drivers of these costs.
Traditional single-allocation-base systems tend to under cost high-volume products and over cost low-
volume products.
Traditional systems keep large inventories of raw material, work in process, and finished goods.
JIT may be regarded as a general philosophy of waste elimination, rather than a particular type of
manufacturing process.
Which of the following can be used in conjunction with activity-based costing?
A) Process costing
B) Job costing
C) Neither A nor B
D) Both Aand B
Which of the following is NOT likely to be a cost driver?
A) Product inspections
B) Production orders
C) Material requisitions
D) Cost accountant’s labor hours
Which of the following is most likely to be the cost driver for the packaging and shipping activity?
A) Number of components
B) Number of orders
C) Hours of testing
D) Number of setups
Which of the following statements does NOT describe an ABC system?
A) ABC systems are more complex and costly than traditional systems.
B) ABC systems may only be used by service companies.
C) ABC systems are used in both manufacturing and nonmanufacturing companies.
D) ABC systems can create more accurate product costs.
Which of the following statements defines a target sales price?
A) It is based on market research.
B) It is the amount customers are willing to pay for the product or service.
C) It is based on traditional cost-based pricing.
D) It is both A and B.
Which of the following statements BEST describes target costing?
A) It generally computes the target cost to be higher than the full product cost of the product or
service.
B) It starts with the target sales price and subtracts desired profit to attain the target cost.
C) It is based on traditional cost-based pricing.
D) It starts with the target cost and adds desired profit to attain the target sales price.
A cost management technique that helps managers set goals for cost reductions through product design
is called:
A) product costing.
B) value costing.
C) target costing.
D) continuous costing.
Which of the following is TRUE about a JIT production system?
A) Customer orders drive the production process.
B) Goods are produced ahead of time to protect against running out of inventory.
C) Materials are purchased in large quantities.
D) Inventory levels are maintained at high levels.
What is the name for the production system designed to eliminate waste?
A) full costing system
B) just-in-time system
C) activity-based system
D) traditional system
All of the following are characteristics of companies using just-in-time production systems EXCEPT:
A) production is in small batches.
B) machines are arranged by function.
C) employees are trained to operate more than one machine.
D) machine setup times are reduced.
A standard costing system that starts with output completed and works backward to apply manufacturing
costs to units sold and to inventories is called what?
A) just-in-time costing
B) traditional costing
C) backflush costing
D) value-added costing
All of the following statements regarding total quality management are true EXCEPT:
A) TQM extends horizontally across business functions.
B) TQM increases time spent on rework and warranty work.
C) TQM is a formal effort to improve quality throughout an organization’s value chain.
D) TQM emphasizes educating, training, and cross training employees to increase and broaden
their skills.
The cost of warranty work is an example of:
A) appraisal cost.
B) internal failure cost.
C) external failure cost.
D) prevention cost.
Chapter 25: Special Decisions and Capital Budgeting
Relevant information is future data that differs among alternatives.
The main financial goals in a business are to earn profits and to build a strong financial position.
Fixed costs, while generally irrelevant in the decision-making process, may change and become relevant.
To maximize profits, produce the product with the highest contribution margin per unit of the constraint.
A constraint is a factor that restricts production or sale of a product.
Make or buy decisions are often referred to as outsourcing decisions.
All fixed costs can be eliminated by outsourcing a product.
A sunk cost is a past cost that CANNOT be changed regardless of which future action is taken.
Investments with longer payback periods are more desirable, all else being equal.
Expected future data that differs among alternative courses of action are referred to as:
A) relevant information.
B) historical information.
C) irrelevant information.
D) predictable information.
Which of the following is irrelevant when making a decision?
A) The cost of further processing a product that could be sold as is
B) The cost of an asset that the company is considering replacing
C) The expected increase in sales of one product line as a result of a decision to drop a separate
unprofitable product line
D) Fixed overhead costs that differ among alternatives
In a special sales order decision, fixed costs that do NOT differ between two alternatives are:
A) important only if they represent a material dollar amount.
B) relevant to the decision.
C) considered opportunity costs.
D) irrelevant to the decision.
In making a short-term special decision, which of the following is most important?
A) Focus on total costs
B) Separate variable from fixed costs
C) Use a conventional absorption costing approach
D) Discount cash flows to their present value
Which of the following describes a sunk cost?
A) A historical cost that is always irrelevant
B) A historical cost that may be relevant
C) An outlay expected to be incurred in the future
D) Relevant to a decision because it changes depending on the alternative course of action
selected
Which of the following is the format of the income statement most useful in decision-making?
A) Single-step format
B) Contribution margin format
C) Conventional format
D) Absorption format
The benefit that can be obtained from the next best course of action in a decision is referred to as a(n):
A) incremental cost.
B) sunk cost.
C) variable cost.
D) opportunity cost.
Roberta has the following information to evaluate: her current salary of $75,000 versus total revenues of
$130,000 and expenses of $80,000 from starting a new business. How much is the opportunity cost
associated with staying at her current job?
A) $50,000
B) $80,000
C) $75,000
D) $130,000
Landmark Company is considering an investment in new equipment costing $360,000. The equipment
will be depreciated on a straight-line basis over a five-year life and is expected to generate net cash
inflows of $70,000 the first year, $80,000 the second year, and $120,000 every year thereafter. What is
the payback period for this investment?
A) 3.75 years
B) 4 years
C) 3.50 years
D) 3.25 years
Which of the following capital budgeting models is the simplest to compute?
A) Payback
B) Net present value
C) Accounting rate of return
D) Internal rate of return
Which of the following capital budgeting methods is based on cash flows, profitability, and the time value
of money?
A) Accounting rate of return and internal rate of return
B) Payback and net present value
C) Net present value and internal rate of return
D) Payback and accounting rate of return
Which of the following is the most reliable method for making capital budgeting decisions?
A) Net present value method
B) Accounting rate of return method
C) Incremental method
D) Payback method